Breaking: Justice Dept. Sues For-Profit Stevens-Henager College

Today the United States District Court in Idaho unsealed a complaint that has been joined by the U.S. Department of Justice under the federal False Claims Act against for-profit Stevens-Henager College and its affiliated schools CollegeAmerica and California College of San Diego.

The case was filed as a whistleblower suit last year by two former recruiters for the school. It charges that Stevens-Henager schools paid their recruiters bonuses, commissions, and other forms of incentive compensation in violation of the federal ban on such compensation.

The suit further claims that Stevens-Henager employed faculty members who lacked the minimum qualifications requited by the school's accrediting agency, and that Stevens-Henager officials falsified student attendance records and grades.The case is United States ex rel. Katie Brooks and Nannette Wride vs. Steven-Henager College, Inc., et al., Case No. 1:13-cv-00009 (District of Idaho).

Under the False Claim Act, individuals alleging fraud against the federal government can sue, technically for the government's benefit. Such cases are filed under seal, not disclosed to the public, while the Justice Department has an opportunity to investigate and decide whether to join the case. The government does so in a less than 25 percent of whistleblower cases. The Justice Department already has joined a similiar case filed against the second largest for-profit college company, Education Management Corp., and it also has been investigating a False Claims suit against troubled for-profit Corinthian Colleges.

The company has campuses in Utah, Idaho, Colorado, Arizona, Wyoming, and California.

Stevens-Henager announced last year that it was converting to become a non-profit college, notwithstanding the emphatic defense that its sole owner, Carl Barney, has made of private sector higher education.

In 2011, Barney called on his fellow owners to respond to what he considered unfair attacks on the sector. According to Barney:

Our sector of education has been under planned, massive attack from some government officials, government colleges and universities (our competitors), consumer groups, plaintiff attorneys, and teachers' unions ad nauseum. And, into this unholy alliance, like vultures, we have discovered that short-sellers were the chief planners and orchestrators.

Barney argued that the for-profit sector was being attacked, through "ugly slander and denunciations by Senator [Tom] Harkin and promoted by some in the media," because of the greed of Wall Street short-sellers who bet against the industry (a familiar claim by for-profit college executives); and because the sector is "enormously successful" and thus a threat to other colleges. A third reason claimed by Barney is:

philosophic -- the most powerful reason. It underlies and 'justifies' much of the disgraceful, unethical, and criminal activities of our adversaries: the Marxist view of profit.... There are many in Washington and in government colleges and universities who are convinced that profit is evil; and, therefore, what we do is evil.... Their view regarding profit as evil is their justification for vilifying us and for trying to damage us.

Last year I obtained a letter that a Stevens-Henager employee wrote to government authorities alleging a lack of standards and integrity in the school's recruiting. It read in part: "Our admission representatives are required to enroll anyone and everyone. All entrance and diagnostic testing has been eliminated... Toothless and homeless people are not marketable and will never pay back student loans. We still enroll them.... Our director said, 'Get 40 people and I don't care what you say or do to get them.'"

Stevens-Henager and its affiliated colleges have established records of leaving their students deep in debt. For example, as of 2009, 40.2 percent of students of the Flagstaff, Arizona, campus of CollegeAmerica defaulted on their loans within three years. The figure was 38.8 percent at the CollegeAmerica campus in Denver, and a still-high 24.7 at the Stevens-Henager campus in West Haven, Utah. For comparison, the default rate at Michigan State University was 4.3 percent.

UPDATE 05-05-14: The Justice Department has now filed its own complaint in the case, alleging that Stevens-Henager used an improper incentive compensation program to "directly or indirectly encouraged its recruiters to enroll anyone who was willing to apply for federal funds regardless of the students' likelihood of success or ability to benefit from Stevens-Henager's educational programs. Stevens-Henager wrongfully procured funding for its own benefit and abused the Title IV program's purposes. Further, this irresponsible recruitment saddles unqualified students with large debts that are difficult or impossible to repay, leading to defaults that ultimately cost the government millions of dollars."